Reply #6: Banks want new rules to exclude 'hybrid' loans

[54anickel]

http://www.latimes.com/business/la-fi-hybrids21dec21,1,7064087.story?coll=la-headlines-business

Banking industry representatives urged regulators Wednesday not to expand recent guidelines on risky mortgages to include a type of sub-prime loan that has become increasingly popular in recent years.

A coalition of nine banking and housing groups, including the American Bankers Assn., asked six federal and state bank regulators to abandon the idea of adding so-called hybrid adjustable-rate mortgages, or hybrid ARMs, to guidelines they put forward in September.

"Reducing the availability of these products by precipitously imposing new underwriting requirements risks denying many borrowers the opportunity for homeownership or needed credit options," the groups wrote in a letter to the regulators.

Those mortgages, which represent about a quarter of the mortgage market, have been criticized by consumer groups for offering a "teaser" fixed interest rate that rises after an introductory period, resulting in "payment shock" to borrowers.

Lawmakers and consumer groups have called on regulators to incorporate the mortgages in the guidelines, which banks use to set underwriting and disclosure standards. The guidelines currently apply to interest-only and payment-option adjustable- rate loans.

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